By Brett Munster
How banks are embracing digital assets after regulatory shift
For years, U.S. banks faced significant regulatory obstacles that prevented them from offering crypto-related services. Key policies from major regulators like the SEC, FDIC, and OCC effectively sidelined traditional financial institutions from participating in the crypto market. However, recent regulatory changes have dramatically altered this landscape, opening the door for banks to provide crypto products and services — a shift that could accelerate mainstream adoption of digital assets.
During Gary Gensler’s tenure as SEC commissioner, the agency played a significant role in deterring banks from entering the crypto space. While the SEC’s Staff Accounting Bulletin No. 121 (SAB 121) didn’t explicitly ban banks from offering crypto custody services, its stringent accounting requirements made doing so economically unfeasible. SAB 121 treated crypto assets differently from all other asset classes, placing heavy balance sheet burdens on banks seeking to hold digital assets, effectively discouraging participation. Additionally, the OCC and FDIC issued repeated warnings about the risks of both direct and indirect exposure to crypto markets. In 2022, these regulators jointly cautioned banks about such risks, forcing financial institutions that had previously shown interest in crypto services to halt their efforts.
Despite this restrictive environment, evidence shows that banks had long been eager to enter the crypto space. A Coinbase FOIA request revealed that the FDIC actively discouraged banks from pursuing crypto-related services, including enabling bitcoin transactions, developing blockchain-based payment networks, issuing stablecoins, and offering Bitcoin rewards debit cards. Contrary to the mainstream narrative suggesting banks were hesitant due to crypto’s volatility, these financial institutions were actively exploring crypto offerings but were blocked by regulatory pressure.
Now, the landscape has shifted dramatically. Following the SEC’s repeal of SAB 121, major financial giants like BNY Mellon, State Street, and Citi — three of the four largest global custodians — quickly announced plans to provide crypto custody services. BNY Mellon took it a step further by partnering with Circle to provide stablecoin services to its clients. This development is a significant step toward integrating digital assets into the broader financial system.
Even more pivotal is the OCC’s recent Interpretive Letter 1183, which reaffirms that banks can engage in key crypto-related activities. This updated guidance allows banks to securely safeguard digital assets, hold stablecoin reserves, and participate in distributed ledger networks to facilitate blockchain-based payment activities. Crucially, the new guidance eliminates the previous requirement for federally regulated banks to obtain OCC approval before engaging in crypto-related services. By removing this bureaucratic hurdle, the OCC has given banks a clear green light to confidently expand their digital asset offerings.
Adding to this shift, the OCC has withdrawn from earlier joint statements with the FDIC and Federal Reserve that had previously warned banks about crypto risks. This change signals a more accommodating stance, recognizing digital assets as a legitimate part of modern financial services.
With these regulatory barriers lifted, major institutions like Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, Wells Fargo and more are now poised to expand their crypto offerings. As these trusted financial giants enter the crypto market, consumer access to secure and regulated digital asset services is expected to grow significantly.
The OCC’s Interpretive Letter 1183 marks a major turning point in the evolving relationship between banks and the crypto industry. By expanding the scope of permissible crypto activities, this updated guidance positions digital assets as a mainstream financial innovation. This newfound regulatory clarity is expected to drive broader adoption, allowing consumers to access crypto services through established financial institutions — ultimately accelerating the integration of digital assets into everyday financial services.
America’s Debt Spiral is accelerating
I’ve discussed the U.S. government’s worsening debt spiral and its implications for bitcoin several times before. While I generally try to avoid covering the same topic too often, the latest data from February is concerning enough to warrant a revisit.
When I first wrote about this in June 2023 and again later that year, the budget deficit stood at $1.4 trillion. By the end of FY 2024, that figure had surged to $1.83 trillion — a significant increase, yet modest compared to the alarming growth unfolding now.
Just last month, the U.S. government reported a staggering $308 billion deficit in February alone. Over the first five months of FY 2025, the total deficit has already ballooned to $1.15 trillion — a massive $319 billion increase over the same period last year. If this pace continues, we’re on track to see an annual deficit of $2.75 trillion — a nearly 50% jump from last year’s already bloated figure.
So, what’s fueling this surge? The answer is simple, exponentially rising interest payments.
The cost of servicing America’s debt has now surpassed defense spending as the second largest expense on the government’s budget. In the not-too-distant future, interest expense is projected to overtake Social Security as the government’s single largest expense.
Source: FRED
The situation is poised to deteriorate further. This year alone, $7 trillion in existing debt will need to be refinanced—debt that was originally issued at near-zero interest rates but will now be rolled over at significantly higher rates. This creates a dangerous compounding effect: more debt requires more borrowing, higher rates drive up costs, and past obligations must be refinanced at these elevated rates. This compounding effect is forcing the U.S. to print increasingly larger amounts of money each year.
Without major reforms to entitlement programs or drastic budget restructuring — neither of which has any political momentum — the debt spiral will only get worse. Deficits are now on pace to reach levels comparable to COVID-era stimulus spending within just a few years.
In practical terms, this means the U.S. will need to print as much money every year as it did during the peak of the pandemic — just to keep the system afloat.
This leaves the government with few viable options other than aggressively debasing the U.S. dollar. And when the value of the dollar deteriorates, assets that can’t be inflated or manipulated become increasingly attractive.
In a monetary system that encourages perpetual currency debasement, bitcoin stands out as an asset that cannot be debased or inflated. With its fixed supply of 21 million and an immutable monetary policy, bitcoin offers a clear alternative to the endless expansion of fiat currencies.
As the debt crisis escalates, the appeal of an asset that’s resistant to inflation and government control becomes stronger than ever. Investors are beginning to recognize bitcoin not just as a speculative asset, but as a critical safe haven — a financial lifeboat in a sea of monetary instability.
The accelerating debt crisis highlights why bitcoin’s fundamental value is more relevant than ever. In a world where governments are forced to print money endlessly to service unsustainable debt, an asset that cannot be diluted becomes increasingly powerful.
In Other News
Sen. Lummis reintroduces a bill in Congress to create a strategic bitcoin reserve and purchase 1 million BTC over 5 years.
The US House votes to repeal IRS DeFi broker rule.
The Senate Banking Committee votes to advance the stablecoin bill.
Tokenized treasuries reach a record $4.2B market cap.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.
BACK TO INSIGHTS